Carbon trading, summer beer, and a few good stocks

Time to sidestep the bad news and look at some stocks that somebody actually likes.

This fund manager has insights on carbon trading, the loonie, gold, oil, gasoline, and muffins – but first he has some stocks to recommend.

We’ve been spending a good deal of time lately mulling over the bear market, so perhaps it’s time to sidestep the bad news and look at some stocks that somebody actually likes.

To do so, we turn to Mr. Michael Smedley, who has been managing a closed-end fund, Canadian General Investments, for two decades.

Writing in Investor’s Digest of Canada, Mr. Smedley has some pointed comments to make about carbon trading, the Canadian dollar, and the price of gold, oil, and muffins.

But let’s get straight to four stocks he likes. All have come down of late – along with a herd of their peers – but for this fund manager that just means they’re better buys at the price.

Surfacing hidden value

“Oil, gas, and fertilizers have made the Canadian stock market one of only a handful of markets staying in plus territory this year – until its demise this July,” says Mr. Smedley.

His favourite stock in the energy sector continues to be EnCana Corp. (TSX: T.ECA, Stock Forum). Since he last reported on it, EnCana “has confirmed its intention to split into separate oil and gas companies.

“That, according to the old fashioned rule, will surface hidden value.”

Beyond a major commitment in the oil sands, EnCana is nicely positioned in several of the large gas shale projects, which are heavily counted on to maintain steady production in Canada and the U.S.

“Picking the lowest point in an ongoing market retreat will be difficult,” says this fund manager, “but further corrections should result in better price points. Do not expect too much on the downside for energy stocks.”

Nevertheless, EnCana has come down considerably, from a high of $97 at the beginning of the July swoon to an opening price of $71 today. That just makes it a more economical buy in Mr. Smedley’s book.

Old-fashioned relief

Summer is still with us. That means beer is in season.

“As I can see the present tougher financial conditions continuing,” says Mr. Smedley, “I sought a bit of old-fashioned relief this month by allocating some money to the brewing sector on the theory that we shall be drinking beer through the summer months.”

But his recommendation is based on more than the thousands of cold ones being consumed on patios and docks across the nation. He is also impressed with the progress being made at Molson Coors Brewing Co. (TSX: T.TAP.A, Stock Forum).

The company has been steadily raising its numbers and its dividends. And it has formed an intriguing working partnership with Miller (OTO: SBMRF, Stock Forum) in the U.S. that will add up to a 30% share of the American market.

“I do not claim knowledge of the future in this matter,” comments the fund manager, “but I do believe a full merger between SAB-Miller and Molson Coors is at least a logical consideration. I like a touch of speculation and I am always ready to seek winners.”

In the general market sell-off, Molson Coors has dropped about $7 from the time this article was written, opening Wednesday at $49.01.

But Mr. Smedley has another point to make about these two telecom giants. Both “will benefit eventually from the releasing of funds from BCE share proceeds.” Rogers opened Wednesday at $33.60 and Telus at $37.90.

By the way, he adds, the major banks should also share in the BCE breakup. In the meantime, they offer high dividend yields and will fight to maintain their payments to shareholders “through these stressful times.”

Following these positive stock reviews, the fund manager has some rather more cynical remarks on the new science of carbon trading.

Promoting Ferrari ownership

Mr. Smedley has a notion that carbon trading amounts to little more than a way to enrich professional traders.

“Being cynically inclined,” he adds, “I deduced that this new revenue creator was, at least partially, a con job to promote Ferrari ownership [among traders]. Why should you be paying commissions to trading desks to buy carbon when the objective is supposed to be to reduce it?”

This fund manager is convinced that carbon trading and all its associated eruptions and distractions – capping and taxing, climate change, and global warming – will simply extend the bear market.

Businesses are wrestling with all the implications of emissions controls even as they struggle with higher fuel prices. “It is hardly surprising that countries with undeveloped resources are getting possessive about their assets,” he says.

“The smart guys, China and India, are not signatories to the clean-up campaign.”

The relentless march of the muffin

In the wake of all this upheaval, the fund manger is sticking with two targets he set some time ago – gold at US$1,500 and the Canadian dollar at US$1.50. They may not be trending that way at the moment, but Mr. Smedley is not giving up.

Finally, there is the ever-fascinating journey of crude oil. The price of gas at the pump will continue going up, he believes. Costs and supply levels (in food as well as energy) will continue adding to inflation. “I try to console myself by saying that oil is not really high relative to it trendless past performance.”

And indeed, Mr. Smedley tells his readers in Investor’s Digest of Canada, its volatility over the years separates it from another great Canadian staple – the muffin.

“I have followed the muffin closely; never has it wavered in its relentless march from 10-30 cents to today’s $1.50 level for standard varieties.”

Muffins may rise steadily in price, but most stocks don’t. Don’t let that get you down, says this fund manager. In the midst of a market sell-off, you can order some of Canada’s tastiest stocks at delicious prices.